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I Think Altigen ($ATGN) Is A Mispriced Stock.

The equity now sells somewhat higher than cash per share and at a market valuation that is less than half of sales. I own the stock because of the large potential for each of the two new products/services and the operating profit leverage as the new replaces the old. When the company begins to report profitable quarters (I'm assuming next quarter) I can see the stock heading back up dramatically as the estimated $0.10-.15 /sh earnings -and recognition of accelerating growth-bring the stock a higher valuation. If revenues turn out to be much higher so will earnings and price target:

Software for the Microsoft Unified Communications

As communications industry started shifting from proprietary, hardware-centric IP PBX systems to open, software-based solutions, AltiGen 's management (who saw this trend coming) gradually converted from its traditional equipment legacy to become a software provider . AltiGen is partnered with Microsoft for whom it created a complete, software-based solution that seamlessly integrates with Microsoft software. Software and direct sales to large customers (5,000 users) are replacing product sales to VARs and small customers (400 users). AltiGen, working closely with Microsoft, now is in a much better business and competitive position.

iFusion SmartStation for iPhone

At the Macworld 2011 conference last year, the company introduced (to rave reviews) the iFusion SmartStation, a revolutionary new docking station for the iPhone. This docking station will facilitate (and accelerate) smart phones' replacement of desktop phones in that the smart phone can now function as the single converged communications device, will save companies money, and will provide users greater flexibility in where and how they work. Given that there are some 350 million iPhones in the world, the potential market for the product appears to be enormous.

Over the last year Altigen announced distributor and Partner agreements that, in my view set the stage for significant sales growth. Recently, Hammacher Schlemmer, America's longest running catalog has become an authorized Retailer. Of even greater consequence, in my opinion, is that both Apple and VoIP Supply are now selling the iFushion SmartStation on their online webstores. VoIP Supply has 100,000 customers worldwide.

The company's breakeven December quarter (after many years of losses) demonstrates the twin effects of rising revenues and a shift in revenue mix. Last fiscal year (ended 9/30) the company's software and service support plans (that have nearly 100% gross margins) again increased their relative importance to 38% of the total from 36% the year earlier. I think that they may account for 40% of the $19 million in revenues I estimate for this year and 43% of next year's estimated $22 million in sales. Under these assumptions, earnings (untaxed) will be a few cents a share this year and reach the low teens next.

Harris L. Berenholz, CFA

Disclosure: I am long OTCQB:ATGN.